China Plays Ball

On Tuesday, I discussed in Daily Profit how cooperation between the U.S. and China was critical to helping investors get past the fears of the Euro debt problem, and keep the world focused on growth.   

I don’t think it’s any coincidence that last night, Chinese officials came out and said they were long-term investors in China, just as Treasury Secretary Geithner finished a round of meetings in China.  

This is exactly the type of cooperation I was talking about. China’s massive currency reserve and trade surplus are meaningless if the global economy goes back in the tank. So it’s in China’s interest to support the euro.   

I will not be surprised if we see a rally for Chinese stocks at this point. Yesterday’s show of support is further evidence that China is willing to “play ball.” China has showed it’s pretty good at managing its economy. And for all the bears forecasting an imminent crash for China, many Chinese stocks are unbelievably cheap.   

Oil prices are also on the rise this morning. Crude futures are hitting above $73 a barrel.   

Commerzbank analysts were quoted as saying there was "a temporary change of mood on the oil market (which) suggests that prices will rise further in the near term."   

I continue to chuckle when I read analysts who simply don’t seem to see the long-term fundamentals of oil. There is a hard cap on global production potential. It’s only demand that can change. And we’ve already seen supply and demand come within a few million barrels a day of each other back in 2007. It’s only a matter of time before it does. 

And I would further argue that relatively lower oil prices actually speed up the time when supply and demand reach parity.   

When oil prices fall, it makes exploration less profitable. So oil companies delay or even cancel plans to bring new supply to market. That means new supply will necessarily be slower to market when demand (and prices) do rise.   

But that’s only part of the issue. Oil prices fall for one reason – expectations of slower economic growth. When growth slows, governments are less likely to fund alternative energy programs to speed the adoption of wind, solar and even natural gas adoption. 

These days, given the debt level of governments around the world, countries simply can’t afford to rebalance their economies and build out infrastructure that integrates alternative energy sources.   

So we are left still wholly dependent on oil, and even more vulnerable to spikes in price.   

While it’s always possible to have stock-specific problems, like what’s happened to BP (NYSE:BP), oil stocks remain one of my top long-term recommendations.   

One week from today, you can join me for the special video investment conference called Profiting from Crisis in Europe. I’ve scheduled it for Thursday June 4, at 6 pm.   

Investors must be ready to act when volatility dominates the stock market. During this special Internet event, Profiting from Crisis in Europe, we’ll discuss how you can use the volatility we’re seeing right now to position yourself for market-beating gains in the years to come.   

Profiting from Crisis in Europe is free to attend, you can sign up for this critical event HERE.